VC Isn’t a Requirement for Growing a Business, Ladies
By Stephanie Nadi Olson, Founder and CEO, We Are Rosie
I love baring witness to the crop of women-led businesses that have sprung up all around us the last several years. Many of them gave me the motivation to do it myself. And I hope to return that favor to the next generation of female entrepreneurs. As I go along my journey, I want to share some of the lessons I’ve learned and I figure VC is as good a place to start as any.
As We Are Rosie has grown into a living, energetic ball of energy, I’ve considered a million scenarios to help us scale and impact the most lives. Venture Capital (VC) has certainly been one of them, but there are so many pros and cons to consider. VC can give you access to power and influence that you wouldn’t have otherwise. It can give you the fuel you need to take down your competition, or to move into a crowded market. It can give you the money you need to enter into an industry like retail, with a high barrier to entry. In short, it can give you opportunity you wouldn’t have otherwise. But there is risk in that. I was stopped in my tracks when a friend of mine, who has raised several million dollars in funding, shared, “Steph, our new investors were pissed we weren’t growing revenue fast enough. They made me fire my entire team and pivot the company to an entirely new product. We’ve had to completely abandon our original vision.” Holy shit. That’s the worst possible scenario.
My husband and I funded We Are Rosie with $50K of our own money, and we’re still bootstrapping today. Over the past several months, I’ve given an incredible amount of thought to how we scale. How do we touch more lives? How do we further our mission to change the way work happens in marketing to level the playing field, increase diversity, and deliver better outcomes for people and businesses? In the beginning of my investigation, VC seemed like the de facto approach. Everyone seems to be doing it. We fetishize the chase of money, the win, and the enormous (albeit rare) exits. I’m a competitive person. I have a “go big or go home” philosophy on a lot of things. So, naturally, I gravitated toward the VC space when I started to think about scale.
As I mentioned in my last blog post, starting and growing a business is HARD. But each step should be strategic and in-line with your true vision. Deciding how you will fund the business is no exception. The long term impacts can be both awe-inspiring or stifling. Giving this decision thought is critical. And you certainly don’t want to just follow the pack.
Here are a few lessons I’ve learned about VC from my community and throughout my own discovery process.
1. VC can be brutal for female founders.
I once sat in a VC pitch. The founder of the pitching company was an incredible talent, tirelessly dedicated to growing her startup. One of the investors (a group of exclusively white men) stopped her and asked her how she could run a business with children. “Who is watching your kids?” he asked.
I felt compelled to email the founder afterward and tell her that she wasn’t alone in that meeting. And to congratulate her on not flipping a table over. I wasn’t sure I could have done the same.
Let’s take a step back and look at the facts: women-led startups are doing better than male-led startups. A 2018 MassChallenge and Boston Consulting Group report shows that women-led startups delivered twice the return on investment. Each dollar of funding that went into a woman-led startup produced a return on investment of 78 cents, compared to the male-led companies’ return of an average 31 cents.
Despite this, the same report shows that male-led startups received more funding from investors. I don’t think I’m alone in finding that these two facts aren’t entirely surprising to hear.
2. VC is not sexy and actually, most VC-backed firms fail.
News flash: It’s not all yachts and billion dollar exits. In fact, most VC-backed startups fail. Fail hard.
According to data from Fundera and cited in Fast Company’s recent article by Lydia Dishamn covering the funding strategies of company Flash Pack, 20% of startups fail in their first year, 30% fail in their second year, and 50% fail after five years in business.
In fact, VC funds often operate like banking institutions, loaning you money and expecting a rapid return on investment, even if it means sacrificing other important aspects of the business. They want to keep an eye on your investment and if your vision doesn’t equate to a fast, efficient return on their investment, you’ll hear about it. A VC can often become the “boss” of the founders, especially if the founder loses majority control (51% ownership). I’ve heard stories of founders being forced to sell their company before they were ready or to exit to their company if they didn’t share the VC firm’s vision.
As someone who knows how much love, passion, and care goes into growing a business, it can be heartbreaking to hear these stories.
3. VC doesn’t always jive with purpose-driven companies.
We all know that purpose-driven venture investors are giving you money because they think that your business could be a billion-dollar business. Most of them won’t even talk to you if you don’t have a $1B plan. And if you do, they will consider you to be a part of their diversified portfolio of investment, which they know will mostly turn out to be failures. You see, they just need one grand slam to make all the failures worthwhile.
I simply don’t want to be “another investment” in a portfolio. I want anyone invested to live and breathe this business the way I do. I don’t want to lose our “why.” I want people to truly understand that we are about changing lives here and that we focus on doing the right thing, which in turn leads to revenue. I would be hard pressed to find a VC that believed in our purpose-first vision.
As a business owner, you need to know yourself, your vision, and your boundaries in considering how to build your startup.
4. Hallelujah! We don’t need VC.
In an effort to avoid taking VC for the reasons noted above, my incredible We Are Rosie team worked hard to grow our business organically. We’ve taken meticulous care of our customers and stakeholders and have had to, out of necessity, pay close attention to the signals and feedback from our customers. And we now have enough revenue to avoid VC altogether, which is a blessing. We’ve been able to grow the business on our own terms and to stay incredibly aligned with our values and ethos.
Through my own experiences and learning from others, I knew that instead of dumping hours into luring VC firms, I could be growing awareness and community. I didn’t see the benefit in forced scaling to increase the bottom line. This was not in the long-term interest of the We Are Rosie community of independent workers, our full-time employees, and customers. And that was okay with me.
Now, I am not here to tell anyone how to run their business, or whether they should take VC. I just want to share some of the considerations that went into our decision. The truth is that there are pros and cons to every type of funding. And we still haven’t ruled out a small business loan or friends/family investing for We Are Rosie in the future.
If you do consider or pursue VC, know who you’re pitching to and why. Be able to articulate the non-negotiables for your business and for you, personally.
Know that you have options.
- Why Women-Owned Startups Are a Better Bet, Boston Consulting Group, 2018
- We built a $17 million business in less than 5 years: Here’s how we spent our money, Fast Company, 2019